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Three more things to include in an executive's contract of employment

by , 24 February 2014
Executives aren't like your ordinary employees. Their level of seniority demands that you include these three things in their contracts of employment.

On Friday last week, we gave you four things to include in an executive's contract of employment.

Now we have three more things we believe you must also include to ensure you have water tight contracts.

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Include these three additional things in an executive's contract of employment

#1: Set out the executive's remuneration or remuneration package in the contract

You must set out the executive's remuneration or remuneration package details in the contract. If, for example, you pay your director a salary, plus benefits, make this clear in the contract of employment.

The Labour Law for Managers Loose Leaf Service explains that the structure of the package is important and you should also make sure that you've checked on the tax implications of the structure you propose.

In addition, make sure you state that you'll review the executive's remuneration annually and that it'll be within the business' 'sole and absolute discretion' to grant any increase in the remuneration package.

#2: Set out the details of any performance bonus or share incentive scheme (if any)

An executive is often entitled to participate in a performance bonus or share incentive scheme.

If this is the case with your company, the contract must set out the details relating to the executive's participation in those schemes. You must also record the tax implications of participation.

Be warned! 'Bonus and share incentive provisions often give rise to disputes, so make sure they clearly set out exactly what's intended,' cautions the Loose Leaf Service.

Also indicate whether bonuses are guaranteed (and, if so, under what circumstances) or discretionary.

#3: Consider inserting the executive's retirement age in the contract

If you're going to employ the executive for an indefinite period of time, you must also insert a provision in which he agrees that the contact will automatically terminate (without notice) when he reaches an agreed retirement age.

Knowing what to include in an executives contact of employment will help ensure you avoid any legal come backs.

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